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Chapter 1 THE INFORMATION AGE IN WHICH YOU LIVE Changing the Face of Business

McGraw-Hill

2008 The McGraw-Hill Companies, Inc. All rights reserved.

STUDENT LEARNING OUTCOMES


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Describe MIS and the 3 important organizational resources within it people, information, and IT. Describe how to use Porters Five Forces Model to evaluate the relative attractiveness of an industry. Compare and contrast Porters 3 generic strategies, top line versus bottom line, and the rungrow-transform framework for developing business strategy. Describe the role of value-chain analysis for identifying value-added and -reducing processes.
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Questions
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Is technology good or bad?

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IS YOUR SOCIAL SECURITY NUMBER WORTH $98?


Information technology has greatly accelerated both the good and the bad IT can be used to increase profit, reduce costs, increase service quality, and benefit society IT can also be used to steal your personal information, commit fraudulent acts, etc Many sites on the Web are right now selling your personal information

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INTRODUCTION

You live in a digital age Average American relies on more than 250 computers per day 50 of the 2006 Fortune 500 companies were IT companies Dell Computer is one of them it was started in 1984 and now has 65,000 employees worldwide

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INTRODUCTION

This book is about the use of technology (called management information systems or MIS) in business The modules teach you how to use technology to increase your personal productivity The chapters illustrate how businesses use technology to

Increase market share and profits Eliminate time and location boundaries Etc
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Business Must Drive Technology

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Business Must Drive Technology


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Assess state of competition and industry pressures affecting your organization Determine business strategies to address competitive and industry pressures Identify business processes to support your chosen business strategies Align technology tools with those business processes NEVER DO THIS IN REVERSE!!
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CHAPTER ORGANIZATION
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Management Information Systems


Learning Outcome #1

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Porters Five Forces Model


Learning Outcome #2

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Porters Three Generic Strategies


Learning Outcome #3

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Value-Chain Analysis
Learning Outcome #4
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MANAGEMENT INFORMATION SYSTEMS

MIS planning for, development, management, and use of IT tools to help people perform all tasks related to information processing and management Three key resources in MIS
1. 2. 3.

Information People Information technology

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Information Resource

Intellectual asset hierarchy data, information, business intelligence, knowledge Data raw facts that describe a particular phenomenon such as the current temperature, the price of movie rental, or your age Information data that have a particular meaning within a specific context

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Information Resource
Information is often aggregated data that has meaning such as average age, youngest and oldest customer, and a histogram of customer ages

Your age a piece of data

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Information Resource

Business intelligence (BI) collective information about


Customers Competitors Business partners Competitive environment

BI can help you make important, strategic decisions

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Information Resource

BI often combines multiple sets of information customers, salespeople, and purchases in this case. 1-14

Information Resource

Knowledge broad term that can describe many things


1. 2.

3.
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Contextual explanation for business intelligence Actions to take to affect business intelligence Intellectual assets such as patents and trademarks Organizational know-how for things such as best practices

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Information Resource Quality Attributes

Timeliness

When you need it Describing the right time period

Location (no matter where you are) Form (audio, text, animation, etc) Validity (credibility) Lack of any of the above can create GIGO (garbage-in, garbage-out) in a decision-making process
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Information Resource Organizational Perspective

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Information Resource Flows of Information


Upward describes state of the organization based on transactions Downward strategies, goals, and directives that originate at a higher level and are passed to lower levels Horizontal between functional business units and work teams Outward/inward from and to customers, suppliers, distributors, and other partners
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Information Resource What It Describes


Internal information specific operational aspects of the organization External information environment surrounding the organization Objective information quantifiably describes something that is known Subjective information attempts to describe something that is unknown

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People Resource

People are the most important resource in any organization, with a focus on

Technology literacy Information literacy Ethical responsibilities

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People Resource

Technology-literate knowledge worker knows how and when to apply technology Information-literate knowledge worker

Can define information needs Knows how and where to obtain information Understands information Acts appropriately based on information

Ethics principles and standards that guide our behavior toward other people
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People Resource - Ethics


You always want your actions to fall in Quadrant I both ethical and legal.

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Information Technology Resource

Information technology (IT) computer-based tools that people use to work with information

Hardware physical devices that make up a computer Software set of instructions that your hardware executes to carry out a specific task for you

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Information Technology Hardware

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Information Technology Hardware


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Input device tool for entering information and commands Output device tool for see or hearing results Storage device tool for storing information CPU hardware that interprets and executes instructions (RAM temporarily stores information and software for the CPU) Telecommunications device for sending info Connecting devices like cables, ports, etc.
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Information Technology Software

Two types of software Application software enables you to solve specific problems and perform specific tasks (Word, payroll, inventory management, etc) System software handles tasks specific to technology management (operating system, antivirus, etc)
See Extended Learning Module A for a review of IT hardware and software
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PORTERS FIVE FORCES MODEL

The Five Forces Model helps business people understand the relative attractiveness of an industry and the industrys competitive pressures in terms of
1. 2. 3. 4. 5.

Buyer power Supplier power Threat of substitute products or services Threat of new entrants Rivalry among existing competitors
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PORTERS FIVE FORCES MODEL

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Buyer Power

Buyer power high when buyers have many choices and low when their choices are few Competitive advantages are created to get buyers to stay with a given company

NetFlix set up and maintain your movie list United Airlines frequent flyer program Apple iTunes buy/manage your music Dell customize a computer purchase

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Buyer Power

Competitive advantage providing a product or service in a way that customers value more than what the competition is able to do First-mover advantage significant impact on gaining market share by being the first to market with a competitive advantage All competitive advantages are fleeting

E.G., all airlines now have frequent flyer programs

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Supplier Power

Supplier power high when buyers have few choices and low when choices are many The opposite of buyer power

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Threat of Substitute Products and Services

Threat of substitute products and services high when there are many alternatives for buyers and low when there are few alternatives Switching costs can reduce this threat Switching cost a cost that makes buyers reluctant to switch to another product/service

Long-term contract with financial penalty Great service Personalized products based on purchase history
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Threat of New Entrants

Threat of new entrants high when it is easy for competitors to enter the market and low when entry barriers are significant Entry barrier product or service feature that customers have come to expect and that must be offered by an entering organization

Banking ATMs, online bill pay, etc

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Rivalry Among Existing Competitors

Rivalry among existing competitors high when competition is fierce and low when competition is more complacent General trend is toward more competition in almost all industries IT has certainly intensified competition in all sectors of business

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PORTERS THREE GENERIC STRATEGIES

Porter identified 3 generic business strategies for beating the competition


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2. 3.

Overall cost leadership Differentiation Focus


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Overall Cost Leadership

Overall cost leadership offering the same or better quality product or service at a price that is less than what any of the competition is able to do

Wal-Mart (Always Low Prices, Every Day Low Prices) Dell a computer the way you want it at an affordable price Hyundai and Kia reliable low-cost cars Grocery stores high-volume, low-margin
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Differentiation

Differentiation offering a product or service that is perceived as being unique in the marketplace

Hummer Like Nothing Else Audi and Michelin safety Lunds & Byerlys high-end grocery store

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Focus

Focus focusing on offering products or services

To a particular segment or buyer group Within a segment of a product line To a specific geographic market
Restaurants Physician offices Legal offices

Examples

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Alternative Business Strategy Frameworks

Top line versus bottom line should your strategy focus on reducing costs (bottom line) or increasing revenues (top line) Run-grow-transform (RGT) framework the allocation in terms of percentages of IT dollars on various types of business strategies

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Top Line Versus Bottom Line

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Top Line Versus Bottom Line

Top Line (increase revenue)

Reach new customers Offer new products Cross-selling Offering complimentary products
Optimizing manufacturing processes Decreasing transportation costs Minimizing errors in a process
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Bottom line (minimize expenses)

RGT Framework

How will you allocate IT dollars to

Run optimizing execution of existing processes Grow increasing market share, products, and service offerings Transform innovating business processes, products, and/or services

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VALUE-CHAIN ANALYSIS

Value-chain analysis systematic approach to assessing and improving the value of business processes Value chain chain or series of business processes, each of which adds value to your organizations products or services Business process standardized set of activities that accomplishes a specific task Two types of processes: Primary and Support
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VALUE-CHAIN ANALYSIS

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VALUE-CHAIN ANALYSIS

Primary value process takes in raw materials and makes, delivers, markets and sells, and services your products and services Support value process supports the primary value processes Ask customers which processes add value and which processes reduce value

Focus IT appropriately

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VALUE-CHAIN ANALYSIS

VALUE-ADDED PROCESSES
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VALUE-CHAIN ANALYSIS

VALUE-REDUCING PROCESSES
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